When should I switch my very aggressive asset allocation to a moderate one?

In my 403(b), I've accumulated $150K (still contributing) and have an all-equity fund allocation. I'm currently 47 yrs old and thinking of changing my allocation to a moderate one 10 years from retirement and then to a conservative one in retirement. Is that a sound plan or too risky of one?

Financial Planning, Asset Allocation
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2 weeks ago
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I think you have the right mindset. Here's a little more details to add precision to your plan.

Your investment plan should match your investment time horizon. The shorter the amount of time until you need a certain amount of money, that money should be invested conservatively. Since you will not need your retirement funds for another 10 years, an all-equity or a growth portfolio should be fine.

Once you are getting closer to retirement, find out how much income you will need from your assets. For example, let's say you need $4000/month in income and have passive income (pension income, social security, rental income,...) of $3000/month, then you will need $1000/m (or $12,000/y) from your assets to supplement your retirement income need. Here's how you would then allocate your portfolio.

1. Cash: $12,000  (Money you will need within the next year should be allocated in cash to rid of any fluctuation)

2. Conservative allocation: $24,000 (Money you will need in year 2 and 3 should be conservatively allocated)

3. Moderate allocation: $48,000 (Money you will need in year 4, 5, 6 and 7 should be allocated in a moderate portfolio)

4. Growth allocation : rest (The rest should allocated in a growth portfolio)

Every year, you should move money from number 4 to 3, 3 to 2, and 2 to 1. This method should help you lower short-term volatility with money you will soon need and still give you the ability to grow your assets for future income need.

I hope this helps.




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